City fees add to Metro Vancouver's housing-cost disparity

Vancouver charges developers far more than suburban cities for items such as public amenities

Vancouver's Oppenheimer Park was paid for with Community Amenity Contributions by developers.

Photograph by: Gerry Kahrmann
, PNG

The high costs of development could be helping to drive up housing prices in the city of Vancouver, figures provided to The Vancouver Sun by the Urban Development Institute show.

Various city development fees, community amenity charges and sustainability requirements add tens of thousands of dollars to the cost of building a condominium unit in the city of Vancouver. Vancouver charges far more than Burnaby and Surrey, the figures show.

Sky-high land costs and slightly higher construction charges also add to the cost of development in Vancouver compared to other parts of Metro.

“The significant cost premiums of building new homes in Vancouver, compared to Surrey, leads to two observable results,” said Anne McMullin, president and CEO of the Urban Development Institute. “Either the increased costs will inevitably be passed on to homebuyers or the viability of building new market housing will be suppressed. Regardless, the end game is a more unaffordable and less socially sustainable city.”

She says the most obvious way to address affordability is to look at the costs and supply of housing.

“Costs affect supply — if it’s too expensive to build, you’re going to limit the supply. But we still have the demand. There’s always going to be a demand — there are buyers who can afford it.”

But Brian Jackson, the City of Vancouver’s general manager of planning, says market demand drives the price of housing much more than the costs of development.

“If we took $1,000 off the cost of the CACs or we took $1,000 off the cost of the DCLs,” Jackson said, referring to two types of city development fees, “is the developer going to take $1,000 off the cost of selling the house? I don’t think they would – they’re going to get the highest price that they could.”

Nonetheless, he acknowledges developers take a lot of risks when they build in Vancouver.

“I think it’s a tough game out there, especially when the market is becoming soft like it is now,” Jackson said.

It may be a risky game for developers, but the figures provided to The Vancouver Sun still show developers making a sizable profit: even with the higher development costs in Vancouver the expected profit is $80,694 per unit, in Burnaby $54,652 and in Surrey $34,668.

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UDI’s figures, including these profit numbers, were calculated for a theoretical high-quality highrise condominium building of 115 units averaging 800 square feet and 1.5 parking spaces per unit, and assuming a 24-month construction period.

The most obvious discrepancy in final cost between regions of Metro is the cost of land. In Vancouver, the cost of land used in the calculations is $170 a square foot, while in Burnaby it’s $100 and in Surrey it’s just $20. So the cost of land per unit in this theoretical development would be 8.5 times higher in Vancouver than in Surrey; $160,983 compared to $18,939 per unit.

But there is also a wide discrepancy in the municipal fees and levies for each unit of the theoretical highrise. The fees and requirements add up to $76,154 per unit in Vancouver, compared to $38,319 in Burnaby and $11,613 in Surrey.

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A major fee in the City of Vancouver is the community amenity contribution. This is used to pay for public benefits like affordable housing or daycare centres. Developers pay CACs for rezoning to higher density. Such CACs can be as much as 75 per cent of the profit a developer would make by getting a parcel of land rezoned for higher density, the UDI figures show.

A developer would pay community amenity contributions of $48,295 a unit in this theoretical building in Vancouver, $30,303 per equivalent unit in Burnaby and zero in Surrey’s City Centre area. (In Surrey’s City Centre, in order to stimulate development, bonus density fees have been waived. Jean Lamontagne, Surrey’s general manager of planning and development, said the charges were waived because margins are not as high for developers in Surrey and the city wanted to make sure projects were competitive and that they were built.)

The high cost of land in Vancouver is also partly responsible for the higher community amenity contributions, said Jackson.

“If we are going to buy parkland, our parkland is more expensive,” Jackson said adding that Vancouver’s facilities are often aging and in need of replacement and that as the population grows more amenities are needed.

“The third component of that is that we have demands on our facilities because they are de facto regional facilities. For example, our parks are regional parks. Stanley Park is an enormous asset, not only to Vancouver, but to the entire region,” Jackson said.

Another use for community amenity contributions is creating affordable housing and reducing homelessness, which is more of an issue and therefore more expensive in Vancouver than in other suburbs.

CACs can be paid in-kind or in cash; in Vancouver the amount is unlimited and negotiable, while in many suburbs a fixed formula is applied.

For example, Burnaby uses a system that it calls the “bonus density program,” in which developers can get extra density in exchange for a fixed contribution towards a community amenity.

“This approach is based on overall objectives within our processes to provide a certain, consistent, and transparent approach for the city, the development community, and for our residents and businesses within our town centres,” said Lou Pelletier, Burnaby’s director of planning and building. “The program has worked well for the city, with most eligible developments choosing to participate, making a significant contribution to our public amenities and facilities.”

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Negotiations for Vancouver’s CACs can sometimes be time-consuming and time is money for developers. But Jackson said Vancouver is moving toward a system of fixed-formula CACs, starting with the Little Mountain and Norquay areas.

“The advantage of a fixed rate is that it provides certainty to the development industry as to what to pay for the land — and that’s a primary component of what goes into a developer’s pro forma, because then they know what kind of project they can deliver,” Jackson said.

“Right now, with negotiated (CACs) they don’t know what to pay for the land because they don’t know what their CAC is going to be. … It’s kind of like a chicken and egg and you chase your tail round and round and it takes quite a bit of time.”

The city is not proposing to give up any revenue as the charges will end up bringing in the same dollars under a fixed-rate scenario, Jackson said.

He said that large-scale developments will always be subject to negotiation.

“Some proposals are so complex, in terms of what they’re proposing to change from and to, that you can’t apply a standard methodology to determine what the increase in the land value is as a result of the change in density; for example Telus Gardens, the project in Arbutus or the project at Marine and Cambie,” Jackson said. “Those are very large, one-off projects where there was a tremendous increase in value as a result of doing large projects and it’s not a simple formula you can apply.”

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Longer approval times at city hall — such as when CAC negotiations in Vancouver drag on — can mean higher costs because money borrowed, say for buying land, cannot be repaid as quickly. This can add significantly to a developers’ costs per unit, according to the UDI numbers.

UDI figures show the process of rezoning and getting a development permit takes about two years in Vancouver, compared to 16 months in Burnaby and Surrey. But Jackson said a rezoning takes nine months in Vancouver while getting a development permit approved takes about 12 to 14 weeks from the point it is a “completed application.”

“When a development permit is a completed application, it’s in a form that staff has agreed to — we’re not arguing about where the building should be or how bulky it should be. We’ve got all that worked out and the clock starts ticking,” Jackson said.

The city of Vancouver is going through a review of its development process in a bid to streamline and speed it up.

“I think that we can do better in terms of responding to the amount of time that is at stake,” Jackson said.

“I would say that within two years we’re going to have a much more expedited process for submitting and reviewing applications.”

Jackson said just three per cent of applications to increase heights, density or uses for a property go through a rezoning.

“Everything else is either prezoned, or it’s able to be done through a development permit,” Jackson said.

It is only in rezonings that certain charges — like CACs — are triggered.

Vancouver also charges what it calls the DCL. Similar to CACs, it is paid by property developers to provide funds for parks, child care facilities or social housing. This fee applies on all developments. (This means a development that requires a rezoning is charged both a DCL and CAC.)

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Other municipal fees such as development cost levies and demolition fees are also higher in Vancouver at $14,427 per unit, compared to $7,070 in Burnaby and $11,140 in Surrey. Part of the reason for the relatively higher costs in Surrey is that Surrey’s development cost charges are higher, because the upgrades to municipal infrastructure are sometime more substantial, Lamontagne said.

Vancouver also has higher levies to collect money for district energy, car share programs, electric vehicle charging stations and public art. Surrey and Burnaby charge developments a school site acquisition charge of $600, a fee that is not applied by Vancouver.

In a bid to increase construction of social housing and market rental housing, the city of Vancouver allows both rezoning and the development permit process to run at the same time in such cases. Vancouver also sometimes waives CACs and other development costs on market rental developments to encourage more of this type of building, which is a city priority. Jackson said waiving those fees and expediting the approval process has made a real difference in getting rental suites built.

“Look what the council has done for rental housing in the three short years that the rental housing programs have been in existence, we are now approaching 1,000 units that have been approved in Vancouver, when the previous two decades had almost nothing,” Jackson said.

“I think that the strategic look at what staff did and council approved was looking at the little nudge that developers needed to help reduce the costs of delivering rental housing by forgiving CACs and DCLs on market housing made an incredible difference.”

But for condominium units, the charges still apply and McMullin said anytime you add costs, the price of housing goes up.

“It’s a high cost to do business in Vancouver, which means that it’s often just the major developers with the deeper pockets that are able to carry those costs and in turn, it’s the buyer that has more money that can afford Vancouver. Burnaby is less and Surrey is less again,” McMullin said.

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Jackson said that rather than reduce the costs associated with development, the city of Vancouver is focused on introducing new forms of housing — like row houses or stacked townhouses — into Vancouver so that people earning between $20,000 and $80,000 can afford to live in the city.

“Vancouver does highrises so well. Really, really well. We do single-family houses so well. The quality of the housing in our single-family neighbourhoods is incredible,” Jackson said.

“What we haven’t done, but our sister communities (like Richmond, Delta and Surrey) have done is townhouses, stacked townhouses and row houses. All of which can help housing affordability.”

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